Progressive tax is the fair solution

March 08, 2010

Commentary in the Tribune by Kristina Rasmussen of the Illinois Policy Institute argues for a flat tax in Illinois ("How to save our state: Don't surrender the flat tax," Chicago Tribune, March 5, 2010).

A progressive tax is more appropriate, and more fair.

History supports progressive taxes. They were effective in the 1950s and 1960s, when we had a 90% top income tax rate and a strong middle class. There's a clear correlation: when the top tax rate decreased, inequality increased.

Rasmussen's assertion that "our societal fabric is stronger when we share a similar proportional stake in funding our government" is not true in the face of the worst economic inequality since the Great Depression. Numerous studies attest to the negative health effects of such disparities in income.

The statement "A flat tax is good for growth because it doesn't penalize those who work hard and add value to our economy" (which seems to equate hard work with wealth) is also questionable. Low-income earners have a higher "Marginal Propensity to Consume," which means that they spend a greater percentage of their overall income on consumption. High-income earners, on the other hand, will save more. In fact, the very rich in our country have put much of their money into mansions, yachts, jewels, and art.

This is not to say that people don't deserve to keep what they earn. The key word is "earn." Over the past 30 years, according to IRS data, the richest 1 percent has TRIPLED their share of America's total income, AFTER TAXES, while the bottom 90 percent has seen their share drop over 20 percent. If this had not happened, the average middle-class family would be making $45,000 a year instead of $35,000.

The tripling of income by the wealthy is the result of money-transferring financial strategies, government deregulation, and tax cuts -- NOT because they worked three times harder than everyone else.

Ms. Rasmussen also claims that billions of dollars left New Jersey after the implementation of a "millionaire" tax. But according to a 2008 Princeton University study, "the 'half-millionaire tax,' at least in New Jersey, appears to be an effective and efficient revenue-generation mechanism, having little impact on migration patterns among half-millionaire households."

Other states (California, Oregon, Maryland, New Jersey) have imposed progressive taxes to preserve public services and repair infrastructure. The rich people didn't run away. They know they've got it good.